Deck 38: Corporationsformation and Financing

Question 1

Promoters, not incorporators, must execute the articles of incorporation.

Answer 1

False

Question 2

A close corporation may restrict the right of a shareholder to transfer stock by means of a shareholder agreement.

Answer 2

True

Question 3

A promoter is not personally liable for a preincorporation contract.

Answer 3

False

Question 4

The "minimum contacts" rule determines in which state a corporation should be chartered.

Question 5

A public corporation is also known as a publicly held corporation.

Question 6

A corporation has perpetual existence in most states unless stated other?wise in the ar?ti?cles of incorporation.

Question 7

A shareholder in a professional corporation can avoid liability for his or her wrongful acts simply by incorporating.

Question 8

Unlike a principal and agent, a corporation is never liable for a tort of its officer.

Question 9

A shareholder in a professional corporation can be liable for malpractice arising from the rendering of professional services.

Question 10

Corporate officers select the corporate directors.

Question 11

The capital structure of a corporation cannot be set forth in the articles of incorporation.

Question 12

A foreign corporation is a corporation formed in another country.

Question 13

Generally, there is a uniform body of national corporate law.

Question 14

A business incorporated in one state has an automatic right to do business in any other state.

Question 15

The choice of a corporate name is subject to state approval.

Question 16

A shareholder is not an "owner" of a corporation.

Question 17

An incorporator must have an interest in a corporation to file its articles of incorporation.

Question 18

Any change in shareholders affects the continued existence of a corporation.

Question 19

A corporation cannot be formed without a profit-making purpose.

Question 20

Corporations are entitled to freedom of speech.

Question 21

A corporate charter can state generally that the corporation is organized to conduct "any legal business."

Question 22

A shareholder is prohibited from lending funds to his or her corporation.

Question 23

The law of the state of in?corporation may restrict the implied powers of a corporation.

Question 24

Every corporation must identify a specific person as an agent to receive legal documents on behalf of a corporation.

Question 25

Any power expressly set out in the bylaws of a corporation is ultra vires.

Question 26

Express powers of a corporation can be found in the resolutions of its board of directors.

Question 27

Any person who buys preferred stock has priority over a holder of common stock to payment on the corporation's dissolution.

Question 28

Express powers of a corporation can be found in the law of the state of incorporation.

Question 29

A corporation's internal management structure is described in its articles or bylaws.

Question 30

The law of the state of in?corporation may restrict the express powers of a corporation.

Question 31

Express powers of a corporation can be found in its articles of corporation.

Question 32

A corporate bond normally has a designated maturity date.

Question 33

"Piercing the corporate veil" means revealing to shareholders the internal rules of corporate management.

Question 34

Because preferred stock is not equity, it is included among the liabilities of a business.

Question 35

A business that holds itself out as being a corporation may not be able to deny corporate status, even if it makes no attempt to incorporate.

Question 36

A state constitution may restrict a corporation's implied powers.

Question 37

Only acts that fall within the express powers of a corporation are ultra vires.

Question 38

Corporate bylaws must be approved by the appropriate state official before the corporation's first organizational meeting.

Question 39

Any person who buys common stock acquires voting rights in a corporation.

Question 40

An association that is not technically a corporation can never be treated as if it were a corporation.

Question 41

Quotient Corporation provides tax and accounting services. Like other corporations, Quotient's constitutional rights do not include

A) a privilege against self-incrimination.
B) a right of access to the courts.
C) a right to due process before denial of life, liberty, or property.
D) freedom from unreasonable searches and seizures.

Question 42

Inez and Jason are the shareholders and directors of Kleen Kustodial Corporation. Lily and Moe are Kleen's officers. As with other corporations, the responsibility for the overall management of Kleen rests with

A) the board of directors.
B) the officers.
C) the owners.
D) the shareholders.

Question 43

Digitech is a foreign corporation, which means that Digitech

A) is an alien corporation.
B) is chartered in a foreign country.
C) may be required to obtain a certificate of authority to do business.
D) may do business only in foreign countries.

Question 44

Dependable Appliances, Inc., is a private, for-profit corporation that (1) was formed for the purpose of manufactur?ing and distributing a newly pat?ented kitchen appliance, (2) is owned by five share?holders, (3) is subject to double taxation, and (4) has made no public offering of its shares. Dependable is

A) an S corporation.
B) a close corporation.
C) a nonprofit corporation.
D) a professional corporation.

Question 45

The shares of Capital Corporation are publicly traded in securities mar?kets. Capital Corporation is

A) a private corporation.
B) a privately held corporation.
C) a public corporation.
D) a publicly held corporation.

Question 46

Ruby Red Corporation has six shareholders, four of whom are members of the same family. All of Ruby's shareholders agree in writing to operate without shareholders' meetings. Under the Revised Model Business Corporation Act, this most likely warrants

A) no penalties or sanctions.
B) the imposition of a fine on Ruby.
C) the imprisonment of Ruby's shareholders.
D) the piercing of Ruby's corporate veil.

Question 47

Fact Pattern 38-1B
Standard Company and Typical Corporation form United, Inc., a close corporation, and agree to restrict the transfer of its stock to anyone else. SC sells its physical assets, but not its United stock, to Variety, Inc. TC files a suit against SC.
Refer to Fact Pattern 38-1B. Under the reasoning of the court in Case 38.2, Salt Lake Tribune Publishing Co. v. AT&T Corp., SC's sale of its assets

A) did not invalidate, violate, or void the stock transfer restriction.
B) invalidated the stock transfer restriction.
C) voided the stock transfer restriction.
D) violated the stock transfer restriction.

Question 48

Finn and Glenda want to form and do business as Hobby Crafts Corporation. A corporation is a legal entity created and recognized by

A) a central federal administrative agency.
B) a city or county clerk's office.
C) an artificial legal person.
D) state law.

Question 49

Raw Resources Corporation authorizes Stefan, its employee, to oversee its mining operation. In the course of this employment, Stefan disposes of the mine's waste illegally. Liability for this crime most likely rests with

A) neither Raw Resources nor Stefan.
B) Raw Resources and Stefan.
C) Raw Resources but not Stefan.
D) Stefan but not Raw Resources.

Question 50

Convenience Mart, Inc., is a close corporation. Convenience Mart is

A) eligible to make public offerings of securities.
B) exempt from filing a certificate of incorporation.
C) generally allowed to restrict the transfer of its stock.
D) taxed in the same manner as a partnership.

Question 51

To qualify as a professional corporation, Medical Clinic, P.C.,

A) must be a corporation formed by professionals.
B) must grant all shareholders voting rights.
C) must have at least thirty-five shareholders.
D) all of the above.

Question 52

A firm named Scientific Discovery Corporation (SDC) makes an attempt to incorporate for a purpose other than making a profit. SDC is

A) a foreign corporation.
B) an alien corporation.
C) a nonprofit corporation.
D) not a corporation.

Question 53

Pola and Quint want to form and do business as River Tours Corporation. A corporation can consist of

A) no natural persons.
B) one natural person but not more.
C) one or more natural persons.
D) only more than one natural person.

Question 54

Boutique Corporation would like to change its corporate status to avoid in?come taxes at the corporate level. To qualify, the shareholders must not be

A) corporations.
B) estates.
C) individuals.
D) partnerships.

Question 55

Motor Parts Maker, Inc. (MPM), is a corporation. Norm is an MPM offi?cer. In a criminal case, Fifth Amendment rights belong to

A) MPM and Norm.
B) MPM only.
C) neither MPM nor Norm.
D) Norm only.

Question 56

Skyla and Terry want to form and do business as Unique Boutique Corporation. Most statutes governing the formation and use of corporations are guided by

A) city or county corporate codes.
B) the Entrepreneur's Corporate Handbook.
C) the federal Administrative Procedure Act.
D) the Revised Model Business Corporation Act.

Question 57

Micro Chips, Inc., is incorporated in the state of New Jersey and is doing busi?ness in the state of New York. In New York, it is properly referred to as

A) a domestic corporation.
B) a foreign corporation.
C) an alien corporation.
D) a national corporation.

Question 58

Bernie and Chan want to form a corporation to market MP3 accessories. The first step in the incorporation procedure is to

A) file the articles of incorporation.
B) hold the first organizational meeting.
C) obtain a corporate charter.
D) select a state in which to incorporate.

Question 59

Jim and Kiley are architects and members of J&K, P.C., a profes?sional corporation. Jim supervises Luc, an employee of the firm. As a member, Jim

A) is personally liable for any tort committed by Kiley.
B) has limited liability for any of Kiley's acts of malpractice.
C) has no liability for any torts committed by Kiley or Luc.
D) may be personally liable for malpractice committed by Luc.

Question 60

Fact Pattern 38-1B
Standard Company and Typical Corporation form United, Inc., a close corporation, and agree to restrict the transfer of its stock to anyone else. SC sells its physical assets, but not its United stock, to Variety, Inc. TC files a suit against SC.
Refer to Fact Pattern 38-1B. Ac?cording to the court in Case 38.2, Salt Lake Tribune Publishing Co. v. AT&T Corp., a reasonable purpose for a stock transfer re?striction in a close corpora?tion, like the agreement between SC and TC, is

A) a desire to limit the participation of outsiders in the firm.
B) a goal to restrain insiders from taking advantage of their position.
C) an attempt to restrain the free flow of commerce among investors.
D) a wish to restrict the transfer of the shareholders' physical assets.

Question 61

Niki owns O.K. Oil Corporation. Niki uses O.K.'s funds to pay her personal expenses, creates Pure Fuel Corporation to engage in the same business as O.K., transfers O.K.'s assets to Pure Fuel, and petitions O.K. into bankruptcy. This most likely warrants

A) a bonus to Niki for financial maneuvers.
B) a discharge for O.K. in bankruptcy.
C) a pierce of O.K.'s corporate veil.
D) a review of Pure Fuel's articles of incorporation.

Question 62

Caffeine Café, Inc., files its articles of incorporation with the appropriate government agency. Least likely to appear in the articles is the name of

A) each of the corporation's incorporators.
B) each of the corporation's shareholders.
C) the corporation.
D) the corporation's initial registered agent.

Question 63

Lita is a holder of preferred stock in Mit-E Detergents, Inc. Lita has priority over holders of Mit-E common stock as to

A) nothing.
B) payments of dividends.
C) the date on which Mit-E must repurchase the shares.
D) upward changes in the market price of the shares.

Question 64

Quik Company claims to be a corporation but it is not. Pam signs a con?tract with Quik that is not performed. In Pam's suit against Quik, a court will likely recognize the firm as

A) a corporation by estoppel.
B) a de facto corporation.
C) a de jure corporation.
D) an ultra vires corporation.

Question 65

Diamond Construction Corporation claims to be a corporation, but it is not. Everett signs a contract with Diamond that it does not perform. Everett files a suit against Diamond. The court will likely hold that Diamond is

A) a corporation by estoppel.
B) a de facto corporation.
C) a de jure corporation.
D) an ultra vires corporation.

Question 66

Discount Factory Outlets, Inc., issues bonds. Bonds

A) are issued by businesses only.
B) are sometimes referred to as "stock with preferences."
C) have maturity dates.
D) require periodic interest payments from their owners.

Question 67

Financial Innovations, Inc., issues bonds, which are also known as

A) cumulative investments.
B) debt securities.
C) equity securities.
D) preferred stock.

Question 68

Omega Corporation makes and markets digital timers, clocks, and related products. Like other business corpo?rations, Omega issues securities to

A) increase its market share.
B) obtain financing.
C) reduce its production costs.
D) safeguard its facilities.

Question 69

Like the bylaws of other corporations, the bylaws of Retail Sales, Inc.,

A) establish the operating name of the corporation.
B) establish the value and classes of corporate stock.
C) were adopted at its first organizational meeting.
D) were submitted for approval to the public official in charge.

Question 70

Stable Hydraulics Corporation's articles list an incorrect address for its incorporator. Under this circumstance, Stable is most likely

A) a corporation by estoppel.
B) a de facto corporation.
C) a de jure corporation.
D) ultra vires.

Question 71

Suki is a registered agent for Transport Trucking, Inc. (TTI), which incorporated in Utah. As a registered agent, Suki

A) agreed to buy stock in TTI before it existed.
B) applied to Utah on behalf of TTI to obtain its corporate charter.
C) does business for TTI in Utah.
D) receives legal documents on behalf of TTI.

Question 72

Dag and Elke are holders of common stock in Fragrances, Inc. (FI). Like other holders of common stock, they have a residual position in the overall financial structure of FI, because they

A) are guaranteed to receive more than the amount of their investment.
B) are the last to receive payment for their investment.
C) have priority to FI's assets if FI becomes in?solvent.
D) reside in the state of FI's incorporation.

Question 73

Superior Home Products, Inc., is a corporation. Superior's implied powers are necessary to

A) amend the corporate charter.
B) bring a derivative suit.
C) declare dividends.
D) perform all acts reasonably appropriate and necessary to accom?plish its corporate purposes.

Question 74

Start-Up Corporation substantially complies with all conditions prece?dent to incorpo?ration. Start-Up has

A) corporate existence by estoppel.
B) de facto existence.
C) de jure existence.
D) ultra vires existence.

Question 75

Stan incorporates his scientific products business as Tech Supply, Inc. This firm could have perpetual existence in

A) a few states.
B) all states.
C) most states.
D) no states.

Question 76

Mari buys 500 shares of common stock in National Livestock Traders, Inc. As a shareholder of record, Mari owns a proportionate interest in terms of

A) control, earnings, and net assets.
B) control only.
C) earnings and net assets only.
D) neither control nor earnings and net assets.

Question 77

Hailey and Ike hold the first organizational meeting of Java Kiosk Corporation. Probably the most important function of this meeting is

A) adopting Java's bylaws.
B) agreeing on Java's purpose.
C) drafting Java's articles.
D) obtaining a charter for Java.

Question 78

Eager Beaver Corporation fails to hold its organizational meeting to adopt bylaws. Under this circumstance, Eager Beaver is most likely

A) a corporation by estoppel.
B) a de facto corporation.
C) a de jure corporation.
D) ultra vires.

Question 79

Frida and Gregor want to market a new line of fishing gear. To avoid income taxes at the corporate level, they should form

A) a C corporation.
B) a close corporation.
C) an S corporation.
D) a private corporation.

Question 80

The abbreviation "P.A." in the name "Painless Dental, P.A." means that this organization is

A) a private association.
B) a professional association.
C) a public association.
D) a publicly administered corporation.